A joint resolution under the Congressional Review Act formally disapproving of final IRS regs implementing Inflation Reduction Act (PL 117-169) tax credit provisions for new and used electric vehicle sales advanced out of the House Ways and Means Committee July 9 by a margin of 25-14.
The joint resolution (H.J. Res. 148) was submitted on May 16 by Representative Carol Miller (R-WV) and was referred to the House at a Ways and Means markup on Tuesday. If enacted, the measure would treat the rules that went into effect July 6 as if they never existed.
Issued May 3, the regs provide guidance on the clean vehicle credits under Code Sec. 30D and Code Sec. 25E. Generally, the credits are worth up to $7,500 and awarded to qualifying buyers of eligible clean vehicles. For new clean vehicles, final assembly must occur in North America.
The regs clarified certain aspects of the credits, including the critical minerals and battery components, transferability, and the “foreign entities of concern” restriction. Examples of a foreign entity of concern include designated foreign terrorist organizations and those on the Treasury Office of Foreign Assets Control’s list of specially designated nationals and blocked persons.
As explained by the Joint Committee on Taxation’s technical description of the joint resolution presented to the committee during the markup, vehicles with critical minerals in the battery extracted, processed, or recycled by a foreign entity of concern and placed in service after December 31, 2024, do not qualify for the credit. Vehicles with battery components manufactured or assembled by a foreign entity of concern placed in service after December 31, 2023, also do not qualify.
According to Miller, the regs “go beyond the letter of the law to benefit China.” She pointed to the provision of the Inflation Reduction Act providing that in 2025, “no critical minerals can be sourced” from a foreign entity of concern. But the “traceability safe harbors” in the regs “directly contradicted” the statute, said Miller.
The regs adopted the three-step “Traced Qualifying Value Test” for the purposes of critical mineral requirement calculations. According to the regs, the test is “more precise” than the proposed “50% Value Added Test” because it requires an original equipment manufacturer (OEM) “to fully trace any value added in each procurement chain that it applies toward the Critical Minerals Requirement.” The 50% Value Added Test was retained as a transition rule. To qualify for the transitional relief, an OEM must demonstrate how it intends to comply with the foreign entity of concern restriction.
“For any new clean vehicles for which the qualified manufacturer provides a periodic written report before January 1, 2027, the due diligence requirement … may be satisfied by excluding identified impracticable-to-trace battery materials,” the regs provided.
To Republicans on the committee, the regs are too lenient and, as Miller described, “support China’s continued dominance of the critical mineral supply.” Ways and Means Chair Jason Smith (R-MO) said the regs “hurt taxpayers in the short run by squandering their hard-earned dollars” and “give China a major foothold in our supply chain and energy security market.”
Representative Don Beyer (D-VA) disagreed, saying the regs strike the “right balance between accelerating the electrification of our passenger vehicle fleet while also making sure that American workers and manufacturers lead the global transition” to electric vehicles. Beyer stated that by 2026, electric vehicle sales will “make up half of all new car sales by 2026.” A June 12 Treasury press release claimed that because of the Inflation Reduction Act provisions, “consumers have saved more than $1 billion in upfront costs on their purchase of more than 150,000 clean vehicles since January 1, 2024.”
Others on the committee sparred over whether the clean vehicle incentives benefit working class taxpayers. Representatives Mike Kelly (R-PA) and Ron Estes (R-KS) argued that only “rich” buyers can afford vehicles the credits apply to and that there is no demand for them among low- or middle-income taxpayers. Representative Jimmy Gomez (D-CA) countered that clean vehicles are getting cheaper and blocking the regs would “make it a lot more difficult for working class Americans to be able to take advantage of these tax credits.”
For more information on the clean vehicle credits, see Checkpoint’s Federal Tax Coordinator ¶ L-18000.
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